Our New World: Commercial Property Opportunities Post COVID-19
Where others see obstacles, we see opportunities.
COVID-19 is a crisis that is set to change everything about the way we live in the world. The commercial property sector is no different – and investors should be taking this into consideration when planning their next move.
COVID-19 has highlighted the value of flexible office space and lease options. It’s also likely to catalyse a significant growth in ecommerce, which until now was still relatively small in South Africa. While the trend in some retail categories has been to shop online before purchasing in store for some time, #LockdownSA will finally convince retailers to build their model around a safe and efficient ecommerce model combined with a relevant in-store experience. There will be other, less obvious impacts on commercial property space as business and commercial culture we took for granted becomes a source of anxiety. A month ago, for example, a business handshake was normal; today it seems ludicrous.
Here are some of the opportunities identified by the Commercial Exchange team:
Shared office space and flexible lease options
In recent years, companies and offices have been downsizing their head offices and shifting to less capital intensive options facilitated by the growth in digital communication and a changing dynamic in corporate cultures.
One of the options that started gaining moment in response to the specific needs of emerging businesses, unable to make long-term commitments was shared office space with its flexibility and short term lease options.
Recently, however, these landlords started experiencing some difficulty mainly due to the financial volatility and shifting nature of the business models of their target market.
All across the world, we have seen how the massive shiny – and hugely capital-intensive – head office or campus can be a real risk in the context of a global pandemic. We anticipate that smaller, decentralised offices will come into vogue in a big way, offering greater flexibility in terms of commutes, as well as flexible lease and space commitments and a mix between office and remote work.
• For many companies, office space may become a support to remote working space, with offices designed for fewer people and more meeting rooms with video conferencing facilities.
• Tenants will be looking for shorter lease terms and more flexible terms.
• Investors should look at redeveloping traditional office spaces that were structured to accommodate one tenant into shared office space that can accommodate multiple tenants in various industries. This would include mixed rental agreements, eg
o 1 to 3 year leases for larger business that would occupy a whole floor.
o 6 months to a year leases that would suit smaller business that need formal business address, business telephone number/reception services, the use of shares spaces such as meeting rooms/boardrooms/quiet rooms and offices.
• Fitouts will need to look at including features that may be more in demand now: no-touch lift buttons and security access, and ventilation systems that reduce the risk of spreading germs.
• Hands-free tech for doors is likely to grow – as is any feature that does not require touch to operate.
• Surfaces that resist contamination will also be more in demand and a potential selling point.
• The need for fast internet speeds will make fibre a must-have.
Industrial/ Warehousing/ Manufacturing Property
• Post COVID-19 business opportunities such as manufacturing will require industrial properties for manufacturing and storage.
• Logistics companies will need support delivery of goods due to the rise of ecommerce.
• Warehousing for cloud computing will be a growing opportunity as more companies shift their activities online or to remote working.
• Parking space may be an opportunity as commuters shy away from using communal spaces on public transport or ride-hailing services in favour of their own vehicles.
• As the pandemic hit, there were winners and losers. Certainly if you were in the large food supply chain your profits are looking pretty good right now and pharmaceutical companies have been hitting all time records as people rushed to stock up on supplies. Some of these food retailers such as Woolworths, had fairly strong ecommerce support structures to extend their supply even further – though delivery is substantially delayed due to demand.
• However, large retailers dependent on shop space such as Edcon (who project a R1.2bn direct loss in income and announced they cannot pay suppliers) and the Foschini group (who announced they would not be paying landlords) started to show significant strain. Here again the winners were those whose business had evolved either a primary or secondary source as ecommerce – as online capability was not interrupted (albeit their online model could not meet the demand). By way of example, Amazon in the US announced they would be employing up to 100 000 extra staff to meet its order requirements.
• We see opportunities for some brick-and-mortar companies to finally shift their limited online profiles into full scale ecommerce platforms, which may require an investment in warehousing, parking for delivery vehicles and so on.
• Retailers could also consider click-and-collect sales such as the type offered by Makro. Retail will still be serving their customers, but in a new way.
• Smaller community shopping centres that offer quick and easy access – leave your car parked in the open, park near the shop you’re visiting, nip in and back out – are likely to be favoured over huge malls that cram lots of people together in the same space. Click and collect of the type mentioned in the point above is likely to grow for the same reason – many shoppers are likely to be extremely anxious about having to queue or shop near others. Shopping centres will need to optimise their parking and delivery areas to allow for this development.
Make no mistake, we are in for a bumpy ride. In the wake of COVID-19, the old way of doing things is forever changed. Many property owners will be looking to liquidate their assets, and the challenge will be for smart investors to assess what type of property is likely to be in demand in this strange new world. The trick will be to get in ahead of the trend, and make smart investments now.